Question

Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows:

Activity Pools	Cost Pool Total			Cost Driver
Repair and maintenance on assembly machine	$	104,000		Number of units produced
Programming cost		168,000		Number of programming hours
Software inspections		12,000		Number of inspections
Product testing		16,000		Number of tests
Total overhead cost	$	300,000

Expected activity for each product follows:

	Number of Units			Number of Programming Hours			Number of Inspections			Number of Tests
Decoder P		16,000			2,000			190			1,400
Decoder Q		36,000			1,500			60			1,100
Total		52,000			3,500			250			2,500

Complete this question by entering your answers in the tabs below.

• Required A
• Required B

Determine the overhead cost allocated to each product. (Round intermediate calculations to 2 decimal places.)

	Total Allocated Cost Decoder P $ Decoder Q $

Answer 1

1. According to the question, The Snowden Industries produces two electronic decoders- P and Q.Because of the sophistication of decoder P the company wants to move on activity based costing. Let's have a look what is activity based costing.

Meaning of Activity Based costing: It is a type of costing in which costs are first traced to activities and then to products.This costing system tries to find the factors that cause each major activity, their cost and the relationship between activities and products produced.

Let's see the working of ABC Costing:

Step I: First we will calculate the Activity cost rates as shown below-

Type of costs/ activity cost pool	Cost pool (a)	Cost Driver	Total Activity(b)	Cost per activity=a/b
Repair and maintenance on assembly machine	$104,000	Number of units produced	52000 units	$2.00
Programming cost	$168,000	Number of programming hours	3500 hours	$48.00
Software inspections	$12,000	Number of inspections	250 inspections	$48.00
Product testing	$16,000	Number of tests	2500 tests	$6.40
Total overhead cost	$300,000

Step II: Statement of overhead under ABC:

Activity	Activity cost	Cost per activity	Decoder P	Decoder Q
			No. of Cost Driver	Total cost	Cost	Total cost
Repair and maintenance on assembly machine	$104,000	$2.00	16,000	$32,000.00	36000	$72,000.00
Programming cost	$168,000	$48.00	2000	$96,000.00	1500	$72,000.00
Software inspections	$12,000	$48.00	190	$9120.00	60	$2880.00
Product testing	$16,000	$6.40	1400	$8960.00	1100	$7040.00

1. Total allocated cost for Decoder P=$32,000.00+ $96,000.00 + $9120.00 + $8960.00= $146,080.00

2.Total allocated cost for Decoder Q= $72,000.00 + $72,000.00 + $2880.00 + $7040.00= $ 153,920.00

Total Allocated Cost
Decoder P	$146,080.00
Decoder Q	$153,920.00